Quick Facts

Comoros contrasts sharply with other African island nations that have found a path to modernization and sustainable development by advancing economic freedom. Despite some progress, the public sector remains dominant and lacks transparency. An overbearing regulatory framework and poor access to credit deter entrepreneurial activity and private-sector development.

Economic Freedom Snapshot

2016 Economic Freedom Score: 52.4 (up 0.3 point)

Economic Freedom Status: Mostly Unfree

Global Ranking: 141st

Regional Ranking: 32nd in Sub-Saharan Africa

Notable Successes: Monetary Freedom and Trade Freedom

Concerns: Rule of Law, Investment Freedom, and Financial Freedom

Overall Score Change Since 2012: +6.7

Poor management of macroeconomic policies and a decade of political crisis have hindered overall economic development. Arbitrary taxation, poor infrastructure, marginal enforcement of property rights, and weak rule of law have driven many people and enterprises into the informal sector.

Background

The three-island Union of the Comoros has experienced more than 20 coup attempts since independence in 1975, most recently in 2013. A 2001 constitution granted each island increased autonomy and stipulated that the presidency would rotate among the three islands. A 2009 referendum extended presidents’ terms from four to five years and increased the central government’s authority at the expense of local governments. The transfer of power to President Ikililou Dhoinine in 2011 was peaceful, and the next presidential election is scheduled for 2016. Although Comoros is a leading producer of ylang-ylang, cloves, and vanilla, its narrow export base and closed economy leave it vulnerable to external shocks. It also has poor transportation infrastructure. Comoros is heavily dependent on foreign aid and remittances.

Corruption is reported at all levels of government, including the judiciary, the civil service, and the police and security forces, and is driven in part by internal political disputes and competition over resources by the three island administrations. The judicial system, based on both sharia (Islamic) law and the French legal code, is relatively weak and subject to influence by the executive branch and other elites.

The top personal income tax rate is 30 percent, and the top corporate tax rate is 50 percent. Other taxes include a value-added tax and an insurance tax. The overall tax burden equals 12.1 percent of total domestic income. Government spending amounts to 25.2 percent of total domestic output. Government finance has been under pressure due to the growth in public-sector wages and salaries and the cost of legislative elections.

The overall regulatory framework remains poor. Establishing a business costs more than the level of average annual income. Retail services are the largest source of employment, and most employment is informal. The government subsidizes state-owned water, electricity, and oil utilities and controls other prices.

Comoros has an average tariff rate of 6.5 percent. It is a member of the Common Market for Eastern and Southern Africa, dedicated to “trade liberalization and customs co-operation.” The small, bank-dominated financial sector has recorded modest growth in recent years. With two new banks coming into operation, the banking sector has expanded, but many people and businesses still rely on informal lending.